Monday, March 26, 2007

New Home Sales: February 2007

Today, the U.S. Census Department released its monthly “New Residential Home Sales” report for February showing both dramatic downward revisions to November, December of 2006 and January 2007 as well as continued weakness with February’s results.

As was noted before, Bob Toll, who was formally calling a bottom in the new home market, recently clarified both his outlook as well as the general misunderstanding that the spring market will bring the highest numbers of new home sales.

“Most of the markets are having a difficult time. The primary reason is the oversupply left by speculators and investors who got caught up in the mania of the price increases that were brought to the market by the extra demand created by the speculators and investors.”

“… the Spring selling season is over, it’s a misunderstanding that we have been unable to correct over the past 40 years. In the new home business, you start selling immediately after the holidays… then you continue to run-up from after the Super Bowl to Presidents Day weekend… That’s the peak of the market… When you stepped back and looked at it [it was] no where near where it should have been if you were looking at an average of the last 10 years.”

So, if we are to take Toll at his word, February’s results should represent either the peak or near the peak of monthly sales for 2007.

This is clearly not a good sign for the new home market as February’s report showed that sales were down across every region, most notably the Northeast, as well as a 26.6% increase to the months supply.

But probably the most notable aspect of the report was the enormous downward revisions to November, December and January helping to push their respective year-over-year declines into the double-digits.

So, we are now continuing to see significant declines on a year-over-year basis as compared to 2006.

It’s important to keep in mind that these declines are coming on the back of the declines seen in 2006.

This should not be understated as it is clearly showing continued and even accelerating weakness to new home sales.

The following charts shows the extent of sales declines seen since 2006 as well as illustrating the further declines 2007 is showing on top of the 2006 results (click for larger versions)

Look at the following summary of today’s report:

National

The median price for a new home was down 0.03% as compared to February 2006.

New home sales were down 18.3% as compared to February 2006.

The inventory of new homes for sale increased 1.5% as compared to February 2006.

The number of months’ supply of the new homes has increased 26.6% as compared to February 2006.

Regional

In the Northeast, new home sales were down 36.9% as compared to February 2006.

In the West, new home sales were down 5.7% as compared to February 2006.

In the South, new home sales were down 17.1% as compared to February 2006.

In the Midwest, new home sales were down 32.2% as compared to February 2006.